Air Seychelles profits from successful expansion strategy

Carrier realises a 171 per cent increase in net profit for 2103, demonstrating the success of Etihad's equity alliance strategy.

Passengers board an Air Seychelles aircraft at Seychelles International Airport on the island of Mahé. Courtesy Air Seychelles
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Air Seychelles, part-owned by Etihad Airways, almost tripled its profits last year, fuelling optimism for Etihad’s “equity alliance” strategy which has focused on turning around struggling airlines to expand its own route network and market share.

The Indian Ocean carrier’s net profit was up 171 per cent in 2013 to US$3 million from $1.1m a year earlier, thanks to a successful expansion of operations. Revenue doubled last year, up 107 per cent to $88.7m.

The airline’s international passenger numbers also doubled, up 100 per cent to 195,857 from 97,576 in 2012. Traffic from domestic operations increased 9 per cent to 156,617 passengers in 2013.

“Our business is now in good shape for the future, which includes growing our operations, launching new routes, taking delivery of new aircraft, expanding airline partnerships, hiring more Seychellois, and bringing more travellers to the Seychelles,” said Manoj Papa, the chief executive of Air Seychelles.

“We have established a solid basis for continued growth which reinforces the future of Air Seychelles and its vital contribution to the Seychelles economy.”

Etihad acquired a 40 per cent stake in Air Seychelles in 2012, in a deal worth $45m. It has since turned a profit for two consecutive years after Etihad took over management of the struggling carrier which had changed chief executives multiple times in a relatively short period and suffered back-to- back losses.

In March last year, Air Seychelles started three weekly flights to Hong Kong and increased frequencies to Abu Dhabi, Johannesburg and Mauritius, increasing its international weekly services to 16. The airline signed new codeshare deals with airberlin, Czech Airlines, South African Airways, and Cathay Pacific Airways, increasing its network last year to 34 destinations from 19.

“We are looking increasing some frequencies to Mauritius, probably looking into setting up operations into Madagascar. Mumbai is on the cards too,” Mr Papa said.

He said that increasing ties with France is also on the radar with twice a week flights to Paris Charles de Gaulle via Abu Dhabi.

“Air Seychelles has radically changed its business plan, focusing on the Abu Dhabi hub as well as Johannesburg and Hong Kong. Their results show a profit, which Air Seychelles did not have previously,” said Will Horton, a senior analyst Sydney-based Centre for Aviation (Capa).

“But the challenge is ensuring this new, apparently profitable, business plan keeps the Seychelles and its business community happy. The absence of Air Seychelles flights to Europe is a change.”

However, Mr Horton said that Air Seychelles’ service to Paris should begin to placate this.

Etihad’s growth strategy has relied heavily on expanding its route network through “equity alliances”, in which it invests in carriers that help it to expand its global reach in strategically important regions. In 2013, Etihad grew its equity alliance to seven – comprising Air Seychelles, airberlin, Virgin Australia, Air Serbia, Ireland’s Aer Lingus, India’s Jet Airways and Etihad Regional — formerly known as Darwin Airline.

Etihad is currently in talks over a potential acquisition of a stake in Altalitia, which would be its biggest investment to date

“Air Seychelles is a good vindication that Etihad’s equity alliance might work. Next step for Etihad is to replicate Air Seychelles’ seeming success elsewhere across its portfolio,” said Daniel Tsang, the founder and chief analyst at the Hong Kong-based aviation consultancy Aspire Aviation. “Particularly, Etihad is poised to inject money into airberlin again.”

Mr Tsang said that Etihad may get a management contract with airberlin if it injects cash into the carrier, but the European Commission’s investigation into non-EU investments into the sector could be a potential barrier.

Airberlin has delayed the release of its annual results because it is working on a recapitalisation of its business. Possible scenarios include Etihad increasing its stake or for the carrier to go private.

“Adding Alitalia to Etihad’s plate adds to the to-do list to restructure these perennially loss-making airlines. But overall, Air Seychelles is a source for cautious optimism,” said Mr Tsang.